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WhoScored: Cesc driving Chelsea on

Tactics And Analysis 2 hours ago
Read
Jun 24, 2009

Liverpool close to vital refinancing?

The last few days have brought good news and bad news for Liverpool fans. The good news is that something approaching financial stability could be on the horizon amid reports that banking groups RBS and Wachovia are ready to refinance the £350m debt that was threatening the club.

The bad news, especially for those who want to see the back of co-owners George Gillett and Tom Hicks, is that the Americans don't appear to be going anywhere.

With a deadline of July 24 looming there had been fears that Gillett and Hicks were on the brink of losing control at Anfield thus allowing the club to spiral out of financial control. If they had not been able to repay the full amount, or agree a new refinancing deal with the banks, the future looked bleak.

Defaulting on the loan repayments would have seen Hicks and Gillett ousted and Liverpool falling into the hands of bankers who would have had no choice but to sell the club to the highest bidder.

Having led the club into such a parlous position, Liverpool fans are understandably far from united in their support of their co-owners, who arrived in 2007 promising to revitalise the club. Yes, there has been progress on the pitch, but at what cost? Off the pitch their tenure has been marked by in-fighting, uncertainty and debt.

Selling up was an option the US sports investors considered, but in such a depressed market they saw little in the way of potential interest, and certainly not at the level they wanted. Instead, Gillett and Hicks set about trying to arrange a refinancing deal, but in order to do so successfully they had to make some serious, long-term decisions.

For their attempts at refinancing the £350m debt to be taken seriously by RBS and Wachovia both Gillett and Hicks have had to commit to selling their other major assets, thereby making personal guarantees to convince the banks they would be able to meet future repayments on their Liverpool debt as well as fund the club in the future.

This began last weekend when Gillett announced that he had reached a deal to sell his 80.1% stake in NHL ice hockey franchise the Montreal Canadiens in a deal worth around £330m. Hicks has yet to agree any deals but is also actively looking to offload his own NHL team, the Dallas Stars, and sell his MLB baseball franchise, the Texas Rangers.

Gillett bought his controlling stake in the Canadiens for £165m in 2001 from the Molson brewing family and by selling back to the same people appears to have doubled his money; although as part of the deal the 60-year-old is also relinquishing the ice hockey team's arena, the Bell Centre, and his sports and music promotions company, the Gillett Entertainment Group.

If Hicks is successful in brokering similar deals, Liverpool will soon become the lone jewel in the crown of these two sports entrepreneurs and, despite their lowly standing amongst Anfield's rank and file supporters, will be committed long-term to the Merseyside club.

That might not sound like good news to sceptical fans, but perhaps more worrying than Gillett and Hicks' continued involvement is the manner of it. If the reports are correct and RBS and Wachovia are poised to agree a refinancing deal the club will still be heavily indebted to two banks.

Reports have suggested that if RBS and Wachovia agree a new deal with Liverpool's co-owners the interest payments on the debts will be significantly higher than before and that several large repayments will be scheduled in the first few months of the deal; hence Gillett and Hicks' need to sell assets and generate wherewithal to meet the banks' new terms.

Last month, the cost of Liverpool's debts was revealed when Kop Football (Holdings) Ltd, the holding company through which Gillett and Hicks own the club, reported their finances for the year ending August 2008 and showed worrying losses of £42.6m.

Of that £42.6m a troubling £36.5m was spent on servicing the interest on the £350m debts - and not reducing the overall debt. Perhaps with their personal coffers swelled by the sale of other sporting assets, the Liverpool co-owners will be able to start making meaningful payments to reduce the club's overall debt burden.

Given that consolidating their position at Anfield is the prime objective for Gillett and Hicks they seem to have made a shrewd appointment as the club's new managing director. Christian Purslow, who as well as being able to speak Spanish and having his own season ticket, also has an existing working relationship with senior figures at RBS thanks to his background in private equity.

This makes him an ideal fit for a role that will require him to assume the strategic responsibilities of outgoing chief executive Rick Parry, assist Rafa Benitez with the acquisition of new players, and maintain positive relations with RBS.

While some Liverpool fans will not relish the continued involvement of Gillett and Hicks at Anfield, if they are able to refinance their debts it will at least secure the club's short term future and avert a meltdown.

Positive developments have already followed the announcement of Gillett's NHL deal in the form of Liverpool's £17.5m acquisition of Glen Johnson and reports that RBS are ready to agree new terms. Hopefully it is a sign of increased strength and will enable the club to rebuff the attentions of Real Madrid and Barcelona who are sniffing around Xabi Alonso and Javier Mascherano respectively.

However, while there are positives to be taken from the progress being made, refinancing Liverpool's debts is just the lesser of two evils; even once new terms are in place it will not alter the fact that Liverpool are heavily leveraged and at risk if they are ever unable to keep up with repayments.

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